The Amplify CWP Enhanced Dividend Income ETF (DIVO) fund has done well, rising to its highest point on record. It rallied to a high of $41.80, meaning that it has jumped by 13.5% this year. This rally has brought its market cap to over $3.69 billion. Its total return has risen by 17.7% this year.
What is the Amplify CWP Enhanced Dividend Income ETF?
DIVO is one of the leading actively managed funds in the market today. It is a popular find that has had over $282 million in inflows this year.
The fund aims to provide investors with regular monthly dividends by investing in a group of dividend-paying companies and selling call options.
According to its prospectus, DIVO benefits when these stocks rise and when they pay their dividends. It also generates returns by using the covered call strategy, where it opportunistically sells covered call options on certain companies in the portfolio. By so doing, the company generates a premium on the options.
Covered call options have become highly popular this year, as evidenced by the success of funds like JEPI, JEPQ, and QYLD.
The idea is that a fund will invest in securities or an index and benefit as it rises. The call option gives the fund manager a right but not the obligation to buy the asset. As such, if the stock falls, the call option trade becomes invalid.
If it rises, the fund benefits by having a chance to buy it at a lower price. However, if the asset rises too much and crosses the strike price, then the investor misses the opportunity.
DIVO’s portfolio is made up of 35 blue-chip companies. Some of the most notable ones are Caterpillar, UnitedHealth, Visa, Apple, Microsoft, Home Depot, Honeywell, and International Business Machines.
DIVO, like other actively managed funds, is more expensive than other passive ETFs like the Vanguard S&P 500 (VOO) and Invesco NASDAQ 100 ETF (QQQ).
Therefore, the fund is reacting to the ongoing earnings season. Some of the top constituents like Goldman Sachs and UnitedHealth have reported strong results, while others like Procter & Gamble and JP Morgan published weak numbers.
Read more: JEPI, JEPQ, and JPIE ETF scorecard for 2024 so far
Is DIVO ETF a good investment?
DIVO and other covered call ETFs have become more popular because of their high dividend yields and growth.
In its case, DIVO has a dividend yield of about 4.4%, which is in par with what the 30-year government bonds are paying. Shorter-term bonds like the 2-year and 10-year have 4.05% and 4.2%.
Still, in this case, DIVO is a better investment because of the potential for the stock growth if its constituent companies do well.
Therefore, right question is whether DIVO is better than other actively managed funds like JEPI, JEPQ, and QYLD. Most importantly, one should ask whether it is a better fund than other passively managed funds.
The JPMorgan Equity Premium Income ETF (JEPI) has a dividend yield of 7.08% and a smaller expense ratio of 0.35%.
Looking at the total return, DIVO has done better than JEPI this year as it has risen by 17.7% against JEPI’s 14.3%. DIVO has also done better in the last three years as it has risen by 29%, while JEPI has soared by 25.86%.
DIVO has also been a better performer than the Global X S&P 500 Covered Call ETF (XYLD), which has risen by just 13.8% in the last three years.
Therefore, in this regard, we can see that the DIVO fund has done much better than other similar funds.
However, the fund has trailed the cheaper VOO ETF, which has risen by 34% in the last three years. VOO has also risen by 23% this year, while DIVO has jumped by 17%. Therefore, given a chance of the 4.4% yielding DIVO and the 1.2% yielding VOO, we believe that the latter is much better.
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